Transportation management systems were one of the earliest technology applications in logistics, but research indicates that TMS remains an under-used tool, even as the complexity of transportation networks increase and service demands become more precise. But with the economy driving a renewed emphasis on result-oriented solutions and cost containment, TMS is back in vogue. Best-practice implementations increasingly use the web to deliver a broader and more robust range of solutions than ever before.
"Most companies have traditionally taken a fragmented approach to transportation management, and so the technology has also been developed and deployed from a silo perspective," says Adrian Gonzalez, senior analyst with ARC Advisory Group. "Leading companies, however, are beginning to take a holistic view of transportation, thereby driving software vendors to expand the scope of their solutions. Procurement, planning and execution are becoming one integrated solution."
This integration is occurring from several directions. Poviders like Logistics.com that began as procurement solutions have added robust transportation- and event-management capabilities, while traditional TMS and supply-chain management vendors like i2 Technologies and Manugistics have added procurement. New web-native TMS companies like Velant, LeanLogistics, Meridian IQ, G-Log and Arzoon also have powerful applications, some of which include multi-modal and international trade solutions. Such execution providers as Irista, Provia and Red Prairie are using supply-chain event management to integrate TMS planning and execution, while 3PLs like Schneider Logistics offer a complete TMS package - from procurement to financial settlement - to both their logistics clients and to customers for whom they host the technology.
"Through the optimization provided by the carrier bid optimizing solution, you get a real-life savings in terms of gasoline, tires and maintenance."
Hosted solutions rapidly are gaining traction in this marketplace and represent a smart option for many companies. ARC's recent study, "Transportation Management Systems Worldwide Outlook," reports that in 2001 about 20 percent of TMS-vendor revenue was derived from recurring fees such as subscriptions, transaction and hosting fees. "This model will continue to gain traction over the next five years, as the (TMS) market grows to over $1.7bn by 2006," the study says.
"Application service providers are a more cost-effective model for smaller players because they don't have to maintain the servers and they don't have to implement and integrate the solution," says Angelo Perino, partner and logistics-distribution leader at PwC Consulting. "Larger players don't seem to be moving to that model as readily, perhaps because they don't trust it yet."
Jim Ritchie, president of Meridian IQ, agrees that adoption of the ASP model has been slowed by the fact that many providers in the space "don't have a history." As a subsidiary of Yellow Freight, Ritchie thinks Meridian IQ has answered that concern. "We are a 77-year-old, $3.5bn ASP provider," he says, "and we find the market is responding to that very well."
A best-practice process in procurement is to centralize transportation purchases across divisions and facilities, says Al Montgomery, supply-chain management and transportation leader with Cap Gemini Ernst & Young consultants. "This is really an untapped area of opportunity. Companies could drive tremendous value if they would move away from the philosophy that individual divisions should have autonomy in all areas. The right model is to let them manage areas in which they have core competencies, but use a shared-service approach in areas like freight management, where they can gain efficiencies through optimization."
Best-practice applications in transportation procurement include an automated bidding process that allows conditional bids and collaboration, followed by automatic tendering that cascades from core carriers to a more open marketplace, and monitoring for contract compliance and carrier performance.
Herman Miller, a large office furniture manufacturer based in Zeeland, Mich., uses LeanLogistics' private transportation marketplace to purchase transportation at both traditional contract levels and real-time spot market rates. After tendering its weekly commitment to dedicated and partner carriers, Herman Miller places the remaining loads on a private market hosted by LeanLogistics to which all its core carriers have visibility, allowing them to bid on loads that match their empty capacity. Any loads not tendered through this means are placed on the more open LeanLogistics Market.
"We are recognizing 5 percent to 15 percent cost reduction in those areas while our carriers are able to capture new loads to fill capacity," says Kevin Tibbetts, director of logistics.
Home Depot has decreased transportation costs and optimized carrier capacity using i2's Transportation Bid Collaboration solution. The huge do-it-yourself home retailer, which annually ships 400,000 full truckload and 4 million less-than-truckload shipments with multiple carriers, replaced its traditional bidding system with a more collaborative process. Using i2 solutions, Home Depot sends a request for bids for full truckload shipments to carriers, which create bids and send them back to the retailer. Home Depot then analyzes the bids, asks for any needed clarification and, if necessary, conducts additional rounds of bidding. By considering service requirements, carrier capacities and total network costs, Home Depot can strike a balance between decreased transportation costs and increased service levels. Gary Cochran, Home Depot's vice president of information systems-logistics, says the company has cut transportation costs by 7 percent, or $7m. "Through the optimization provided by the carrier bid optimizing solution, you get a real-life savings in terms of gasoline, tires and maintenance - as opposed to just a cost shift, which is not true economic value," he says.
Some companies already have best-practice procurement processes in place but still look to online TMS solutions for other services. Kennametal Inc., a $1.8bn industrial tool manufacturer headquartered in Latrobe, Pa., has centralized its transportation procurement and considers that process to be a core competency, but it turned to Meridian IQ for help in ensuring compliance to contract rates.
"What often happens when a company centralizes procurement is that it makes cross-company volume commitments to carriers in order to get the right rate consideration," says Meridian IQ's Ritchie. "But then it doesn't have the ability to enforce those rates in a standardized format and runs the risk of not living up to its promises to the carrier. In Kennametal's case, the procurement decisions it makes are fed into our TMS system, which optimizes decisions for carrier selection based on negotiated cost parameters and service quality."
"From the first shipment we did with Meridian IQ, we continued to meet critical customer service requirements and reduced total costs," says Michael Waldrop, manager of global logistics and trade compliance at Kennametal.
An emerging best practice in compliance is the concept of a dynamic routing guide, says ARC's Gonzalez. This solution as offered by Logistics.com, he says, "is a great example of how taking an integrated approach to transportation management creates a greater value proposition for customers."
Most TMS solutions maintain a static routing guide based on the results of the bidding process, Gonzalez explains. "But assumptions made during the bidding process change over time or the execution system cannot operate on the same assumptions."
Instead of blindly following the routing guide, Logistics.com's OptiManage Selector module can be configured to assign each carrier a score using real-time performance metrics. The carrier with the best score becomes the recommended carrier to handle the shipment.
"The system can either adjust the standing automatically, or what is perhaps a better approach considering the importance of maintaining good relationships," Gonzalez says, "the system can alert both the logistics manager and the carrier to the deviation prior to reducing the carrier's rank, providing a grace period to the carrier to solve the problem." Shipment visibility is another emerging best practice. General Motors Supply Parts Organization is managed by Schneider Logistics using MySumit Transportation Manager. When GMSPO places an order with one of its vendors a copy of that order goes to Schneider Logistics. "That copy in our system creates an order that says, we know the supplier was asked to ship 100 widgets next Wednesday at 10 a.m.," explains George Grossardt, vice president of alliance services at Schneider. Changes can still be made to the order, but transportation planning begins. "At this point we assign a specific carrier to that order for pickup at the specified time."
In the meantime everyone has visibility to the order so if any changes are made - if, for example, the vendor has a production problem and can only fill 80 of the 100 - the manufacturer can go to plan B and perhaps find another supplier for the additional 20. "When the trucker shows up, he confirms that he is loading 80 and GM knows which trailer number is carrying these items and when it will arrive. "The point is to give all parties in this process the ability to see what is happening at the SKU level," says Grossardt. "Ultimately that will allow them to take inventory out of the supply chain."
Optimizing transportation planning and execution remains a best practice. Best Buy implemented several products from i2 to do just that. "We had issues surrounding fuel costs, driver shortages and trailer shortages," says Eric Morley, director of transportation. The i2 implementation came just before the Christmas rush and Morley said Best Buy "had to make some decisions that weren't the optimal ones, but i2 Transportation told us that. We knew what the optimal decision was, and what the cost of doing something other than the optimal was going to be."
"We're doing a lot of planned load consolidation using i2," Morley says. "We found that being able to consolidate less-than-truckload shipments, even from the same vendor over multiple days, would add value."
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